1. Changing Channels of Product Distribution
- The Implications for Airlines and Regulators
Prepared for:
Aviation in Transition: Challenges & Opportunities of Liberalization
ICAO Headquarters, Montreal,
23 March 2003

2. The Airline Environment is Changing
Low Cost Airlines
‘Simple’ product requiring innovative distribution
Facilitated by ‘Leapfrogging’ IT
Passengers adoption of internet and e-tix has surpassed expectations
Full Service Airlines
Complex product offering
Desire to target multiple market segments
Focus on FFP, CRM
But increasingly determined to fight LCC
GDS
Largely ‘disinvested’ from airlines
However, airlines retain a commercial relationship as marketing partners
GDS have recognised the power of internet and are buying into on-line travel agencies and servicing airline portals

3. Sales Channel Sophistication
Airlines are determined to reduce costs, monitor channel performance and match channels to market segments
Full service complexity: online booking, intranet, call centres, syndicated portals
Low cost simplicity: 90%+ online booking
Full service airlines responding with portals…but do they match the costs of online booking?

4. Agent Productivity and Corporate Sales Driven by New Developments in IT
Airline Agent IT Products -
agent differentiation
incentive schemes
decision support system
use of detailed data
Airline Corporate Accounts IT
booking tools
monitor budgets and compliance
market knowledge systems
ultimately airlines seek integrated direct connectivity with corporates

5. ‘Pull Factors’ Driving End Traveler Appeal
Airlines are using IT to optimise commercial activities including networks, FFP, CRM and Pricing
Pricing sophistication driven by prevalence of channels aimed at price sensitive segments:
Airlines enter into favored deals with preferred/owned channels
Opaque and NYOP used to sell ‘excess’ capacity
Potential downside of internet booking may be a general decline in yield due to ‘perfect competition’
Pricing is likely to attract the increasing attention of the regulators

6. The Regulatory Challenge
The main regulatory focus is on GDS and the internet
Distribution regulation previously focused on GDS.
Disinvestment of GDS potentially reduces market power
Opportunity to increase airlines’ negotiating power
GDS still have substantial power and are buying into internet
Need for internet distribution rules
Desire not to stifle internet sales channel ‘in its infancy’
Initial issues for regulatory consideration focusing on:
Consumer protection
Airline ownership
Protecting on-line agencies
Availability of fares
Degree of airline control over sales

7. Other Less Crucial Areas That May Require Regulatory Review
MIDT: Contention that access to data and systems benefits major airlines
Corporate Connections: Extent of control required over in-house agencies
Pricing:
Issue of ‘opaque’ vs. ‘NYOP’
‘GDS-type’ control over availability of fares

8. Overall Conclusions IT created an exciting array of distribution tools
Airlines’ behaviour is increasingly complex
Possible reduction in need for ‘traditional’ regulation
However great unknown is potential market power of internet booking tools
Equally, increasing passenger and airline maturity may obviate need for regulation and allow ‘the market to decide’

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